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Retirement at 75? Decades of benefits killing social security

Written By | Feb 9, 2014

WASHINGTON, February 9, 2014 — In the mid 1930s, the federal government acted to provide income security for the elderly. People worked for 40 or 50 years or more, until they could no longer work, then retired with very little to live on. Government had a responsibility to ensure the elderly not spend the few years between retirement and the end of life impoverished.

In order to provide retirees with some income, a Ponzi-like plan was created. The government would tax each worker and each worker’s employer a percentage of their wages. Since there were so many people working and so few people in the 65 to 67 or older age group, the tax rate would be only one percent for the employee and one percent for the employer. The tax would be paid on only the first $3,000 of wages. This revenue would be used to fund current payments. Then when current workers retired, younger workers would pay for them.

Then two things happened.

The elderly convinced Congress their retirement payments should be increased to keep up with inflation so that they did not suffer a loss of purchasing power.  More importantly, people started living longer — a lot longer. Today people routinely live into their 80s, and more are making it past the century mark.

To accommodate the elderly for the rest of their lives, the Social Security program is now paying some workers up to 40 years of benefits. It is simply not possible for a person to work for about 40 years and expect to be paid for 80.  In the future the problem is likely to get worse.

If Obamacare does not significantly reduce the advancement of medicine, people will start to live much longer and have much more active lives. Some say that children born today are likely to live to be at least 125 years old and be physically active at well over 100. If that is even close to right, we will have a serious problem with Social Security.

Keeping the retirement age at 65 or even 66 or 67 will not be sustainable. People cannot work for 40 years or so and then expect to be paid until they are in their 90s and beyond.

Making the problem worse is current demographics. The huge number of baby boomers who were born between 1946 and 1964 are entering retirement age. There are fewer in the Gen X, Gen Y and millennial generations. Instead of the original situation in which seven people worked for each one receiving benefits, we will be down to two or three people working for each person receiving benefits. This will not work. The only reasonable solution is to increase the number of people working and paying into the system and reduce the number of people receiving benefits.

The only way to do that is to raise the retirement age to 75. This can be done gradually to avoid any injustices.

This will keep people in the workforce longer and increase social security tax revenue, while reducing the numbers retiring and collecting the entitlement. The bizarre argument the federal government has recently proposed — that it is a good thing for people to drop out of the workforce — should be dropped immediately.  We should be encouraging more people to be contributors and fewer to withdraw benefits.

There are other things we can do, like testing to see whether people have the means to provide for their own support in retirement. If they do, then Social Security payments are not needed. That is how insurance, like the Social Security Insurance, is supposed to work.  Insurance is purchased, and if not needed it does not pay any benefits, like auto or fire insurance.

There are counterarguments, but it is imperative that we do something to change Social Security. For those of us who are baby boomers and plan to retire shortly, raising the Social Security retirement age to 75 is not a welcome idea. But we cannot continue to burden our children and grandchildren with future obligations that they will not be able to pay, and into a program that will be unable to pay them benefits. That is not fair.

Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.